LEGISLATION INTRODUCED IN COLORADO TO REGULATE FINANCIAL PLANNERS/INVESTMENT ADVISERS

January 27, 1994 TO: INVESTMENT ADVISERS COMMITTEE NO. 6-94 COLORADO INVESTMENT ADVISER ASSOCIATE MEMBERS RE: LEGISLATION INTRODUCED IN COLORADO TO REGULATE FINANCIAL PLANNERS/INVESTMENT ADVISERS __________________________________________________________ Two bills have recently been filed in the Colorado General Assembly that provide for the regulation of financial planners and investment advisers. The first bill, Senate Bill 94-57, which was drafted by the Colorado Division of Securities (the "Division"), amends the Colorado Securities Act to provide for the registration and regulation of investment advisers by the Division. Specifically, Senate Bill 94-57: defines the terms "investment adviser", "investment adviser representative", and "investment advisory services"; provides for the registration of investment advisers and their representatives; requires specified disclosures be provided to clients of advisers; and includes provisions relating to possession of customer funds or securities, fraudulent conduct, civil liabilities, and the Division's access to records maintained by an investment adviser or its representatives. Most of the provisions in the bill are modeled after the NASAA Model Amendments to the Uniform Securities Act. No hearings have yet been scheduled on Senate Bill 94-57. The second bill, House Bill 94-1085, would create the "Colorado Truth in Financial Planning Act of 1994" (the "Act"). The Act would provide that it is a deceptive trade practice for any person in connection with providing financial planning services to: fail to disclose in writing prior to being engaged all compensation that the financial planner "reasonably anticipates receiving for the provision of financial planning services" to the client over the next twelve months; after being engaged, to fail to disclose in writing to a client at least once every three months all compensation received for the provision of financial planning services to the client; or to fail to disclose, prior to being engaged and annually thereafter, any sanctions and settlements to which the financial planner has been subject in the past five years. As defined in the bill, the term "financial planning" means the provision of services by any person who, for compensation, engages in the business of providing advice to clients to achieve the overall financial goals of the client. The term includes, but is not limited to, advisors, life insurance agents, lawyers, accountants, and estate planners. Violation of the bill's disclosure requirements could result in the Attorney General or a District Attorney commencing a civil action to seek an injunction or civil penalties of $2000 to $100,000, or in a client suing for the greater of $250 or treble damages. On January 25, 1994, a hearing was held on House Bill 94-1085 by the Business Affairs & Labor Committee of the Colorado House of Representatives. At the hearing, the Institute provided testimony in opposition to the bill inasmuch as it fails to provide investors with adequate protection or recourse, and it is not uniform with provisions enacted by most of the other states. The bill was defeated by the Committee by a vote of 6-5. A copy of both bills is attached. Tamara K. Cain Assistant Counsel Attachments